Research Center

The economy continued to gain upward momentum in October thanks to domestic-driven factors. Briefly, trade, IIP, and retail sales continued growing robustly in a stable inflation environment. Looking forward, the 2nd lockdown in large European economies, the 3rd largest trade partner, will once again put great uncertainty on the economic growth, but this time we believe the economy knows how to live with it. Besides, domestic consumption-driven sectors are and would be in good shape in 4Q20.

Recent monetary easing decision from SBV is expected to maintain the interbank rates at a low base in 4Q20. In the context of cheap liquidity flooding to banks and lending activity remaining sluggish, demand for Vietnam G-bonds was rocketing to an all-time high in the primary G-bond market. Looking forward to October, we expect the interest bank rates to remain stable at low levels, while abundant liquidity will put further downward pressure on G-bonds from 5-year to 15-year tenors.

Economic recovery continues gaining pace by 3Q20’s end. The latest data showed 3Q20’s GDP growth rebounding markedly to 2.63% YoY from its historic low of just 0.36% YoY in 2Q20. Both export and import were accelerating at a double-digit pace, while the industrial sector continued to grow robustly. Also, FDI disbursement recorded the highest level in 2020. All these things are signaling a further economic recovery in 4Q20.

Recent developments in the interbank market and G-bond markets continue in August as interbank rates and G-bond yields remain extraordinarily low. Subdued credit growth, from our view, is the main factor behind that downward trend. We maintain our view that these ultra-low interest rates would be reversed if the first lending market started to pick up.

Data in August showed that the economy continued to recover further but at a more modest pace. Overall, export-import and industrial sectors saw further improvements, while the exchange rate and inflation remained highly stable. On the other hand, the disruption in FDI inflows put high pressure on the Government about how and when to open the sky. We assume a business-as-is scenario and expect the further improvement of the economy in September.

Sluggishness in banking lending activity excites participants in the money and G-bond markets due to high uncertainties in the business conditions. As a result, interbank rates and bond yields continued to stay low along with increasing trading activities. We predict that the situation will continue to happen in the next month until the first lending market picking up.

We saw that economic recovery was losing its momentum in July 2020 in some aspects. Trade activity slowed down as our most import trading market as the U.S faced tough in controlling the pandemic. Other indicators, including CPI, IIP, FDI, also decelerated to some extent. We argue that the virus containment in the U.S will take time, and the Da Nang outbreak will likely hurt our production. Hence, we predict economic indicators to decrease modestly in August 2020.